The principal tool to measure economic growth is Gross Domestic Product (GDP). But GDP is a deeply flawed way of measuring progress. While it tots up the total of a nation’s economic activity in any given year, it ultimately fails to reveal anything about environmental stability, social cohesion, psychological health or public services.
Contradictions in this measurement are startling. Chopping down a rainforest and turning it into toilet paper increases the GDP. So does an increase in the sale of urban 4x4s or cleaning up an environmental disaster. When the Exxon Valdez oil tanker spilt its vast load on the pristine Alaskan shoreline, US GDP went up as legal work, media coverage and clean-up costs were all added to the national accounts. The Enron fraud has been calculated to have contributed upwards of $1bn to US GDP.
GDP measures what we make, but can’t measure what we destroy to make it.
Even Simon Kuznets, the Nobel Prize winning economist who helped develop GDP, recognised such flaws when warning the US Congress in 1934: “The welfare of a nation can scarcely be inferred from a measurement of the national income.”
In short, GDP measures what we make, but can’t measure what we destroy to make it. Our economy is borrowing prodigiously from the natural economy but without recording the loans.
In his recent series of Lionel Robbins Memorial lectures on happiness, Emeritus Professor of Economics at LSE, Professor Lord Richard Layard, argued for a radical review of what delivers “welfare” to society and a thorough upgrading of the morals of economics. He quoted a study at Cornell in 1996, where students were tested for honesty over a six-month period: those who took introductory economics became less honest while those who took astronomy became markedly more honest – a salutary lesson of the impact of economic value systems.
As we start to question issues in the Wellbeing debate, society may tune into a more balanced way of life, working less, earning less, spending more time with family and friends and less money on pointless positional goods.
New taxation, regulation and Consumer shifts may move our capital-based economy away from defining its success by economic growth to being defined by economic development that brings good long lives to the majority with least resource input and footprint on our planet.
Ecological economics, on the other hand, focuses on the debate of how we define “progress”: as a burgeoning GDP? As the mountain of “stuff” we have accumulated? Or it is more about qualitative development?
Ecological economics assumes that ecosystems are critical to our survival, that we are hugely ignorant of how they work, what their value to our economy may be and what future generations” preferences might be. Unlike neo-classical economics it recognises limits to growth and can conceive of co-operation, not competition, being central to human and commercial relations. Indeed, Game Theory has now shown us that “reciprocal altruism” is often the optimal strategy.
The main idea behind sustainability is to shift the path of progress from growth, which is not sustainable, toward development, which can be.
The main idea behind sustainability is to shift the path of progress from growth, which is not sustainable, toward development, which can be. This requires a fundamental culture shift away from passive Consumerism towards active Citizenship, and merely appealing to people’s self-interest perhaps by showing they can save money does nothing to engender the greater sense of community-scale collective action needed. There is also evidence from research in self-determination theory that activities pursued for intrinsic values (personal growth, emotional intimacy or community involvement) lead to far more persistent and active engagement than those driven by extrinsic values like the acquisition of material goods or image and position.